Jury sides with US Airways against Sabre in GDS antitrust trial of the century

The jury has returned its verdict in US Airways’s $134 million antitrust lawsuit against travel technology giant Sabre.

The airline, obelow owned by American Airlines Group, persuaded a jury in a US federal court that Sabre’s 2011 contract provisions violated US antitrust law. Sabre must pay the company $5 million in damages, which will be trebled, plus attorneys’ fees.

The airline’s lawyers successfully argued that Sabre had threatened it, saying that it had to accept a contract on Sabre’s terms or else be cut off from a network of thousands of travel agents worldwide who depend on the inventory that the tech giant provides via desktop software.

During contract negotiations, Sabre never offered a deal for less than full-content, the airline said. Full-content contracts typically require an airline to provide the same fares it offers via any other channel, such as its own website, to Sabre, too.

The jury found that Sabre’s action violated antitrust law. It only awarded a sliver of the damages the airline had hoped for. But the ramifications of the decision could affect hundreds of millions of dollars of future contract decisions worldwide.

The case — which has gone on for six years in different forms in the US District Court for the Southern District of New York — has been closely watched in the industry because full-content contracts are widespread between major airlines and the three major global distribution systems (Sabre, Amadeus, and Travelport), who act as middlemen for plane ticket sales worldwide.

The 11-person jury sat through months of testimony about the airline’s claim that Sabre acted in ways that squelched technology competitors from appearing. The lack of competition allegedly kept the fees high, and the fees were allegedly passed on to consumers who buy tickets via higher fares.

The jury had to decide if Sabre abused its dominant market position in the US to force US Airways to agree to its contract terms.

During the trial, Sabre conceded that it has the largest market share of the three GDSs in North America.

But the Southlake, Texas-based company argued, among other things, that its scale brought enough efficiencies and other benefits to the airlines, to the agencies, and to consumers.

Sabre argued that its fees are justified relative to the cost an airline would incur to distribute its fares comparably by other methods. It said consumers benefited by agents having a full array of options for price comparison.

“We will continue to defend the interests of consumers who seek transparent and efficient shopping, booking and servicing of travel; we therefore expect to file a motion to set aside the verdict immediately, which would award $5.1 million in single damages to US Airways. To the extent the Court declines to grant the motion to set aside the verdict, we will pursue an appeal.

“Sabre believes it acted lawfully and fairly, and we do not anticipate any impact to existing offerings. In the meantime, we will continue to work with American Airlines, focusing our efforts on helping them drive business success with smart technology.”

American Airlines has issued a statement, too:

“We are very pleased with the jury’s decision and greatly appreciate the time and effort they expended during the course of this eight-week trial.

“We have long contended that the contractual provisions at issue – provisions that Sabre has made a condition to participate in its global distribution system – have reinforced Sabre’s market power, stymied competition, and harmed us and the travelers we serve.

“Now that the jury has agreed with us, we hope to see changes in the way our services are sold, and we expect technology and innovation will create even better and more transparent ways for us to distribute our products.”

No conspiracy

US Airways also argued that Sabre illegally conspired with Amadeus and Travelport to take actions that dampened competition and kept their fees high.

The jury had to look at claims that the GDSs worked to deliberately not compete for the airlines’ distribution business by offering lower booking fees in exchange for lower airline fares or better airline amenities, thereby harming competition and keeping fees and fares higher than they should have been.

The jury found no proof of conspiracy.

More than 100 people were deposed in the case. In a celebrity touch, one of US Airways’ expert witnesses was winner of the Nobel prize Joseph Stiglitz.

But the airline’s case wasn’t easy. For instance, in one pre-trial transcript, a Sabre lawyer said to the judge that the airlines’ main economist experts, including the Nobel prize winner, “could not identify a single competitor foreclosed from this market due to the complained of contract provisions.”

The airline had wanted to avoid a jury trial, partly out of concern that the case would be too complicated and jurors might have more of a negative emotional reaction to airlines than to a faceless tech company.

Few industry observers expected the two companies to let the case go to a jury. This autumn, Sabre had offered a financial settlement without admitting liability. But the offer was rejected.

For details of the trial itself, the best coverage has been at The Company Dime.

Long road

In 2012, American Airlines settled similar litigation against Sabre. Tnooz estimated that deal to have been worth $280 million. In that case, American was more focused on its attempt to create a direct connection with corporate travel agents, which Sabre’s rules prohibited.

Earlier than that, Northwest Airlines (since merged with Delta) had a similar case against Sabre, with a twist that it wanted to charge extra for bookings done through a middleman — thus running afoul of Sabre’s contract rules. That case also settled out of court.

Given Sabre’s plans to appeal, it is unclear what impact this will have on future full-content provisions in contract negotiations. Presumably, discussions will change in the short-term.

JPW

JB Pieri

Kenny

This is the right decision in my view. It means in my opinion that there should be an end to forced contracts for Full Content. At a time when the DoT is asking for input on this topic – this case should ensure that there will be an open view of access to content that is owned by one party – just like there is for any other marketplace. Airlines are not that special and this is something the court seems to have accepted. The removal of special constraints on the market is something that looks to be the right way forward. An open and free commercial marketplace is enshrined in the US Legal Code as represented by Sherman and Clayton and thus the court has ruled. Now lets see how the challenges fare.
Cheers

Robert Monod

The DOT is asking for information on anti-competitive practices being practiced by the airlines, not the GDS systems or OTA’s. Specifically, they are asking for information on the fact that certain airlines are now withholding content from OTA’s or GDS systems, and asking for input from others to determine if this is an anti-competitive practice. This question was brought forth by the DOT due in part to Delta’s practice of removing content from OTA’s starting in late 2010, which was actually reported on this website.

For Delta’s point of view on this subject, one only has to review Delta’s quarterly earnings call transcripts, including the question and answers from financial analysts and the media from January 2011 going forward. If you follow the comments closely, you will see that Delta’s strategy of withholding content from certain websites is an effort to 2 things: The first is to drive customers to book exclusively through delta.com. The second is to prevent sales of interline fares that involve the use of the cheapest Delta fares (L, U, and T classes).

In most industries where many suppliers exist, such actions by Delta are generally allowed, and applauded by shareholders of companies that try to cut costs in this manner. However, in industries with few suppliers, such acts are generally considered anti-competitive under the Clayton Act, as companies that have monopoly power on pricing which refuse to deal with others is generally seen by the courts as the supplier’s use of monopolistic pricing policies that have an ultimate goal of driving up pricing and profits… which ironically, is the very thing that American is claiming that Sabre was doing.

I didn’t make the point clear above – I should have – but I refer the reader to my article on the DoT Request for Information. It is about the dissemination of information concerning airline fares. The ultimate question is whether or not one’s information is freely able to be controlled by the owner of the information. To that end there are two perspectives. If we take current US regulations – once something is published – irrespective of the source – it’s fair game. We do need to ask a question: does any other industry require their information of the entire product catalogue to be generally available down a specific channel? I don’t think so – not in any general consumer based product category. So the argument about whether or not any airline can control the dissemination of its information has to be addressed in the broader context of all commercial services. Monopolistic pricing practices are not really at debate here. There has been de-regulation of pricing of airline products and de-regulation of GDSs for quite some time now. Thus the need for re-regulation will be hard to make. The New US Administration is incoming with a mandate (in their mind) to have lesser government rather than greater oversight or control by some regulator. Thus I think it will be hard to make the case as some have mooted for forced product distribution via any one channel such as Travel Agencies or their dependent GDSs.
This is however a good debate.